The week ahead of us will have inflation data from the US and the UK, employment data from the UK and Australia, consumption data from the US and China as well as preliminary Q3 GDP from Japan.
USD
Senior Loan Officer Opinion Survey, conducted by the Fed, showed that lending conditions continue to tighten. Additionally, households and businesses showed lower demand for credit. If credit stops flowing freely through the system it will have negative impact on growth and that in turn will lead to lower demand which should bring inflation down. Precisely what Fed intended to happen with their rate hikes.
Fed Chairman Powell spoke at the IMF meeting and stated clearly that they are not confident that they have achieved sufficiently restrictive policy adding that if it becomes necessary to tighten further “we will not hesitate”. Hawkish rhetoric from Powell added fuel to USD and pushed back on markets’ dovish pricing. Powell’s speech was interrupted by climate activists and in the audio he can be heard dropping an f-bomb. In the Q&A section he stated that economy has been stronger than expected but that it should come down in the coming quarters.
The yield on a 10y Treasury started the week and year at around 4.55%, rose to around 4.67% level, then fell below 4.50% and finished the week at around 4.61%. The yield on 2y Treasury reached the high of 5.05%. Spread between 2y and 10y Treasuries started the week at -28bp then widened to -40p as curve inverted further. The 2y10y is has now been inverted for over a year. FedWatchTool now sees the probability of a 25bp raise at December meeting at around 10% while probability of no change is at around 90%.
This week we will have inflation and consumption data.
Important news for USD:
Tuesday:
CPI
Wednesday:
Retail Sales
EUR
Final services reading for the month of October for the Eurozone was unchanged from preliminary reading at 47.8, a drop from 48.7 in September. Spanish and French readings improved with former moving further in expansion with 51.1 print while Italian and German readings declined compared to September with former heavily missing on expectations while former managed to improve slightly from the preliminary reading. Composite for Eurozone came in at 46.5 vs 47.2 the previous month. The report shows that Eurozone started Q4 on a very weak note and there are no signs of improvement in the near-term.
ECB Chief Economist Phillip Lane stated that drops in underlying inflation pressures are welcomed but they are not enough. Progress has been made in pushing them down but that there is still room for more. He added that balance sheet will need to be shrinked but it will have to be at levels higher than those seen in its early years. ECB September survey of consumer expectations saw median expectations for one year rise to 4% from 3.5% previously. The reading is highest since April and with inflation expectations moving in undesired direction ECB will be pressed to revisit their monetary policy stance.
This week we will have second reading of Q3 GDP.
Important news for EUR:
Tuesday:
GDP
GBP
Preliminary Q2 GDP reading printed flat on quarter and 0.6% y/y. Details show that construction increased 0.1% while services sector declined 0.1% with production coming in flat. On the expenditure side details were abysmal. Household consumption declined 0.4%, government expenditure declined 0.5% while business investment plunged -4.2% while adding 4.1% in the previous quarter. Net trade showed surplus of 0.7% GDP as exports increased 0.5% and imports declined -0.8%.
This week we will have employment and inflation data.
Important news for GBP:
Tuesday:
Employment Change
Unemployment Rate
Wednesday:
CPI
AUD
RBA has delivered another 25bp rate hike as expected bringing thus cash rate to 4.35%, the level not seen in the last 12 years. Inflation has passed its peak but remains too high. Inflation is coming down slower than expected and new projections see it at 3.5% by the end of 2024 and at the top of the target range of 2 to 3% by the end of 2025. The unemployment rate is expected to gradually increase to 4.5%. Uncertainties prevail regarding outlook and lags of monetary policy. The statement concludes with “Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks.” This reaffirms their data-dependent stance, but it may mean that data will need to surprise even more to the upside in order for them to deliver more rate hikes.
Chinese trade surplus contracted in October and printed $56.53bn, down from $77.7bn in September. Exports have declined 6.4% y/y while imports rose 3% y/y. Declining exports are indicative of weak external demand and will have negative impact on GDP reading. Rising imports is encouraging sign for the world economy, all of exporters such as Australia, as it signals return of Chinese demand. IMF has raised forecast for China 2023 GDP to 5.4% from 5% previously and for 2024 to 4.6% from 4.2% previously. Inflation data for October saw decline in prices as CPI printed -0.2% y/y, down from being flat in September. A big drop in food prices, particularly in pork prices, caused a deflationary reading. PPI saw a decline of 2.6% y/y.
This week we will have employment data from Australia as well as production and consumption data from China.
Important news for AUD:
Wednesday:
Industrial Production (China)
Retail Sales (China)
Thursday:
Employment Change
Unemployment Rate
NZD
RBNZ’s survey of inflation expectations now sees inflation in one year at 3.6% while in two years it is seen at 2.76%. Inflation expectations have fallen to new lows not seen in the last couple of years. RBNZ was not planing on hiking rates in foreseeable future and this piece of data vindicates their stance.
CAD
BoC minutes from the latest October meeting saw members agree that “further tightening would likely be required to restore price stability” and that “Council members agreed to revisit need for rate hike at future decisions with benefit of more data, agreed to state clearly they were prepared to raise the rate further if needed.” These were hawkish remarks from BoC but they were not enough to help CAD gain strength.
JPY
September labor earnings came in at 1.2% y/y vs 1% y/y as expected and up from 1.1% y/y in August. However, when we take inflation into account we see that real wages fell 2.4% y/y, they have been declining since 2022. Declining real wages translated into drop in household spending which declined 2.8% y/y. One positive is that household spending rose 0.3% m/m. BoJ Governor Ueda spoke about importance of increasing productivity in order to raise real wages and added that the bank will not need to wait for positive real wages before exiting Yield Curve Control policy and negative interest rates.
This week we will have preliminary Q3 GDP reading.
Important news for JPY:
Wednesday:
GDP
CHF
SNB total sight deposits for the week ending November 3 came in at CHF474.6bn vs CHF472.1bn the previous week. A small improvement but overall sight deposits have been moving in a tight range for almost two months.
